(Answered) Consider a small open economy that produces steel and cloth

Economics

Consider a small open economy that produces steel and cloth under Heckschel Ohlin condition, using 200 units of capital and 135 units of labor.

Under free trade conditions the two goods are produced using the capital-labour ratios:

Ks/Ls=2 and Kc/Lc=0.5

With these factor intensities, outputs of the two goods are given by Qs=5Ks and Q=10Kc.

a. How many units of cloth would this economy produce?

b. How many units of steel would this economy produce?

c. Graph the box represent the allocation of resource in the economy.

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Macroeconomics, Economics

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